Better Property Services Assessing the Economic Value of a Better Property Services (BPS) Future Annex B to Final Report: Case Study, Canada - Ontario

Version 1.0 November 2013

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B

This Annex to the report on Better Property Services was produced by ConsultingWhere Limited and ACIL Allen for Land Information New Zealand (LINZ). Copyright of the material contained within the report, unless otherwise specified, belongs to LINZ. All rights reserved. The professional analysis and advice provided by ConsultingWhere and ACIL Allen has been prepared for the exclusive use of LINZ and other central government departments for their internal use. This report has been produced solely for the purposes stated in the report and should not be relied upon for any other purpose. In conducting the analysis in this report ConsultingWhere and ACIL Allen have endeavoured to use what they consider is the best information available at the date of publication, including information supplied by LINZ and other New Zealand Government departments. ConsultingWhere and ACIL Allen do not warrant the accuracy of any forecast or prediction in the report. Although ConsultingWhere and ACIL Allen exercise reasonable care when making forecasts or predictions, factors in the process, such as future market behaviour, are inherently uncertain and cannot be forecast or predicted reliably. ConsultingWhere and ACIL Allen accept no liability of any kind to any third party and disclaims all responsibility for the consequences of any third party relying on the information contained in this report and acting or refraining from acting as a result. Specifically, ConsultingWhere and ACIL Allen shall not be liable in respect of any claim arising out of the failure of an investment to perform to the advantage of the client or to the advantage of the client to the degree suggested or assumed in any advice or forecast given by ConsultingWhere and ACIL Allen. Copyright Notice This document incorporates material from a variety of third party sources. Sources of copyright material are acknowledged within the text as appropriate. Version History Version 1.0

Date 15/11/2013

Description Release to LINZ

Authors AMC, LR

For further information on this report please contact: Andrew Coote Telephone +44 (0)1923 291000 Mobile +44 (0) 7860 884119 Email [email protected]

Alan Smart +61 2 8272 5114 +61 404 822 312 [email protected]

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B

Contents Contents

i

List of Tables

i

Annex B: Case Study, Canada-Ontario (Teranet)

2

Brief Description of the Service Services provided by Teranet Levels of customer satisfaction Metrics (sales and pricing) Political Framework Historical and political background Governance Lessons learned

2 4 6 6 12 12 16 18

B1 B2 B3 B4 B5 B6 B7 B8

List of Tables Table 1: Statutory and ELRS charges by service

7

i

Assessing the Economic Value of a Better Property Service (BPS) Future

Annex B: Case Study, Canada-Ontario (Teranet) B1

Brief Description of the Service

Preamble

The following is a case study of Ontario’s Electronic Land Registration System (ELRS) which is wholly owned by a commercial company, Teranet. Originally, this was a public private partnership between the Government of Ontario and Teranet but it has evolved into a contractual relationship between government and service provider in the provision of land registration for the Province. The total land area of Ontario is just over 900,000 sq kms, 87% being Crown Land. The total population in 2012 was 13.5 million, of these nearly six million live in the provincial capital, Toronto. The GDP of Ontario in 2012 was 675 billion Canadian Dollars (CAD) just over a third of the total GDP of Canada. By comparison, the population of New Zealand in 2012 was 4.5 million and the GDP was the equivalent of CAD 174 billion (NZD 209 billion). In terms of the scope of the ELRS service, it does not deal with planning issues such as building and resource management consents. The focus is on the transacting of land and property, its registration and conveyancing. Background to land registration in Ontario

Today, the system of registering interests in land in Ontario is almost exclusively the Land Titles System as opposed to the original Registry System1. The registry system is governed by the Registry Act going back over 200 years to the first colonisation of Canada. The more recent land titles system is governed by the Land Titles Act. The registry system deals with the documents affecting title to property. Each instrument must be examined to determine its legal effect each time a change of ownership occurs or some other dispute arises. The Land Registration Reform Act, as amended in 1994, introduced many changes to the land registration system including automation and electronic registration. Under the land titles system, the Province has custody of all original titles, documents and plans and has legal responsibility for the validity and security of all registered land title information. Once the property has been registered and certified, the Province guarantees the title to, and interests in, the property2. Since this record is updated each time a land registration document is registered, only a search of the current register of interests is required in order to ascertain title. By March 2011, approximately 99.9% of properties in Ontario were recorded under the land titles system and had been automated from paper-

1

For a summary of the registration systems and legislation see: http://rc.lsuc.on.ca/pdf/ht/re22LandRegistrationInOntario2007.pdf

2

A type of Torrens system in other words. 2

Assessing the Economic Value of a Better Property Service (BPS) Future

based to electronic form3. Leases of more than seven years are also within scope of the registration system. Crown Land is cared for and managed by the Ministry of Natural Resources within the Ontario Government. The Office of the Surveyor General (within the Ministry of Natural Resources) oversees all Crown Land surveys and legal descriptions for the management of Crown Land in Ontario. The Office provides professional survey advice and services to the Ministry of Natural Resources and members of the public with property adjacent to Crown Land4. Leases of Crown Land are administered through the Land Registration Offices. There are also Native Land rights, titles and claims, this is a complex area, mainly a Federal rather than a Provincial responsibility, and not dealt with here5. The Central Production and Verification Services Branch of Service Ontario (Ministry of Government Services) operates 54 Land Registry Offices in Ontario. These Land Registry Offices register, store and manage documents such as deeds, mortgages and plans of survey. All registered and deposited records are available to the public to search titles or obtain information about the ownership of real property. The guarantee of title; registration process and title examination; control, ownership and use of land registration data, the application of legislation and the fee structure and regulation are the responsibility of the Provincial Government of Ontario 6. However, the commercial organisation Teranet7, owns and operates Ontario’s Electronic Land Registration System (ELRS) and facilitates the delivery of electronic land registration services on behalf of the Province. The ELRS is now the sole means by which ownership of real property and interests on title are searched, recorded and transferred in the Province of Ontario. Thus, Teranet, as a commercial company, has a monopoly on this service and there are no alternative channels for transacting registrations. There are essentially three databases in Ontario upon which support the ELRS: 1. The Title database with its abstracts of title information. This is known as POLARIS (Province of Ontario Land Registration Information System). Further details are given below. 2. The Mapping database of 5.8 million parcels within Ontario which is maintained by Teranet and kept consistent with the Title database. It serves as an index to finding property and providing further property details. This is known as Ontario Parcel™ and it is comprised of (i) an Assessment Parcel Layer - areas of land defined for

3

Currently there are 36,000 titles held under the registration system, most of these are "troubled" titles which are either in dispute or for which the succession of documents is not complete. However, all of these are in electronic form and within scope of the system.

4

For more information on the administration of Crown Land in Ontario see: http://www.mnr.gov.on.ca/en/Business/CrownLand/2ColumnSubPage/STEL02 165785.html

5

See Ontario Ministry of Aboriginal Affairs website: http://www.ontario.ca/aboriginal/land-claims

6

See Ontario Ministry of Government Services website: http://www.gov.on.ca/en/information bundle/land registration/content/STEL02 165314.html

7

See Teranet website: http://www.teranet.ca/our-company/about-teranet 3

Assessing the Economic Value of a Better Property Service (BPS) Future

property assessment purposes, (ii) Crown Parcel Layer – provincial parks, conservation reserves, patents, active leases, licences of occupation and acquired lands, and (iii) Ownership Parcel Layer –areas of land for which there is registered title of ownership by an individual or organization8. 3. A database of digitised copies of instruments attached to land parcels.

Services provided by Teranet

B2

The ELRS enables customers to perform searches, submit title documents for registration and perform many other functions. The system is used by over 250 municipalities and institutions, 42 real estate boards, and more than 13,000 real estate and land registration professionals, including lawyers and law clerks, land surveyors, conveyancers, brokers, agents, lenders and insurers9. The main services provided are briefly described below10: Property Search and Registration Services









Teraview - this is the core of the ELRS, it provides licensed11 clients access to POLARIS. Teraview allows them to securely access the POLARIS database without having to visit a local Land Registry Office. Users can perform property searches, collaborate with other users and submit Land Title documents for registration, as well as view and print instruments, plans and parcel registers. ROSCO (Remote Online Search Capability Ontario) provides access to the Government of Ontario’s land records database. Teranet operates more than one hundred workstation terminals located at Land Registry Offices and Service Ontario locations across the Province. Using these, users can search and print parcel registers, view and print electronic and imaged documents, search and print Writs Certificates and Writs Detail Reports and print transaction summary reports by reference number after each session. POLARIS is the search/registration and property maintenance system for all automated land records in Ontario. It to be accessed and exported by other applications in various ways. This web interface allows Land Registry Office staff to create, maintain and update Official Data, which can then be retrieved and used by the Teranet services. Property Search uses the Teranet eXpress channel which is available to businesses and also consumers requiring one-off searches. It allows users to search and print

8

This is the subject of a data sharing agreement between the Ministry of Natural Resources (MNR), Municipal Property Assessment Corporation (MPAC) and Teranet

9

Press release by ServiceOntario, " Summary of Ontario-Teranet Relationship" undated but post 2010

10

For a full description see http://www.teranet.ca/solutions/property-search-registration/

11

For details of the authorisation process see: http://www.gov.on.ca/en/information bundle/land registration/content/198674.html?openNav=electronic registratio n 4

Assessing the Economic Value of a Better Property Service (BPS) Future

parcel registers from POLARIS. The parcel register can be searched by name, address or Property Identification Number (PIN) and the results are emailed directly to the user. Writ Search and Filing Services

Teranet provides access to Ontario’s Writs System, allowing clients to determine whether a person, corporation or other legal entity has a writ of execution filed against them within a sheriff’s jurisdiction. The Writs System acts as the electronic database and index for the sheriff/enforcement offices. A creditor may file a writ of execution against a debtor in one or more of the 49 counties or districts in Ontario. Online access is available through other services and Teranet eXpress (see above). Users can perform name searches against individuals or companies and produce certificates pertaining to writs of execution. These official certificates are valid for both land titles and land registry transactions. Mapping & Property Data Services

These are on-line information services aimed at Ontario municipalities, provincial agencies, utilities and other organizations mainly based on Ontario Parcel™ (see above). Other Value Added Services

These include: 









12

GeoWarehouse® – a web-based, centralized source of property information for land professionals. It includes mapping and research tools, professional reports, and other features such as neighbourhood demographic information and streetscape imagery; Purview® – an online service that provides Canadian financial institutions, mortgage lenders, property, title or mortgage insurers and real estate portfolio managers with automated valuation and fraud detection services; REDX - a risk management service for the mortgage and financial services industries. It allows industry professionals and organizations to perform due diligence on business professionals, as well as receive and exchange public and non-public information. The service centralizes information on alleged fraud, misrepresentation and misconduct from widespread sources and makes it available to customers quickly and accurately. Ontario Parcel™ – digital mapping data relating to ownership, assessment and Crown parcels of land. It provides the basis for spatial applications required by government and utilities. The Conveyancer® – system to assist the legal community in managing the workflow and information required in real estate transactions. It automates documents needed to complete purchase, sale and mortgage transactions. The system is available through Do Process LP®, a subsidiary of Teranet12.

Teranet acquired Do Process Software Ltd. and its main product, The Conveyancer® in 2008. Do Process offers other products for the legal profession. The conveyancing product is also available for other provinces in Canada. 5

Assessing the Economic Value of a Better Property Service (BPS) Future

Levels of customer satisfaction

B3

Teranet quote a figure of 87.6% for a customer experience survey conducted in 2012 for their value added services but there is no comparable figure for their regulated services 13. As far as can be determined from interviews and various reports on the web, the property and legal professionals seem satisfied and there is no doubt they have benefitted greatly from the increase in productivity which access to the ELRS has provided. The main dissatisfaction arises from land surveyors and utilities. Also value adding services requiring data controlled by Teranet. Instances include:  

    

Licensing restrictions on the use of data and its pricing which Teranet would argue result from impositions by the provincial government; Derivative works - Teranet claim rights over any additional information added to maps originating from them e.g. creation of additional layers using Teranet mapping as a backdrop; Costs of large area searches e.g. for pipelines, power lines where there is a charge per parcel searched; Ownership of parcel mapping originally created by municipalities and also surveyors14; Time taken for mapping to be updated by Teranet - said to be up to 12 months after receipt of the original parcel data; Time taken to make corrections to plans; No means of submitting CAD drawings: paper plots have to be submitted and these are recreated within the ELRS. (They will soon be able to accept .pdfs however but not CAD drawings15.)

B4

Metrics (sales and pricing)

Pricing

Examples of fees and pricing of Teranet services are shown in the table below. This is for standard services for which the Provincial Government regulates prices, it does not include prices for value added services provided by Teranet (see above) which are not regulated.

13

See: http://www.teranet.ca/our-company/about-teranet

14

See http://www.lawtimesnews.com/201301212678/commentary/the-dirt-teranet-on-a-roll-with-legal-businesssuccesses where a class action against Teranet brought by land surveyors was rejected by the Court apparently on a technicality.

15

There are plans to have a full e-solution in place by 2015. 6

Assessing the Economic Value of a Better Property Service (BPS) Future

Table 1: Statutory and ELRS charges by service Type of service

Specific

Description

How

service/product Teraview

available

Getting started

Licence for "Getting Started" -one-time fee includes software and Default

package

Keys for LRO and Enforcement Office

Additional user

One-time fee - one licence to install software on 1 PC and 1 Personal

package

Security Licence)

Additional personal

Fees in CAD (Excl tax) Statutory

ELRS

Total

Download

$0.00

$595.00

$595.00

Download

$0.00

$345.00

$345.00

One-time fee

Download

$0.00

$195.00

$195.00

One-time fee

Download

$0.00

$180.00

$180.00

Land Registry Office"

Download

$0.00

$300.00/

$300.00/

year

year

$60.00/

$60.00/

security package Additional software licence Additional Key

Additional Key

Writs Enforcement Office

Download

$0.00

year

7

year

Assessing the Economic Value of a Better Property Service (BPS) Future

Table 1 continued: Statutory and ELRS charges by service Type of service

Specific

Description

How

service/product Teraview (cont)

e-reg (for search and registration)

Fees in CAD (Excl tax)

available Search parcel registers

On-line

$8.00

$10.00

$18.00

Inactive parcel registers

On-line

$0.00

$1.00

$1.00

Power of Attorney Search

On-line

$0.00

$18.00

$18.00

Registration or deposit of an instrument or plan in electronic form

On-line

$60.00

$10.00

$70.00

Display of parcel map by PIN

On-line

N/a

$5.00

$5.00

Viewing and copying plans

On-line

$5.00

$10.00

$15.00

Writ search by name

On-line

$11.00

$0.00

$11.00

8

Assessing the Economic Value of a Better Property Service (BPS) Future

Table 1 continued: Statutory and ELRS charges by service Type of service

Specific

Description

How

service/product POLARIS

available

Search Property

Search and print parcel register

On-line

$8.00

$20.00

$28.00

Additional pages

Additional pages

On-line

$1.00

$1.00

$2.00

Inactive PIN

Inactive parcel register

On-line

$0.00

$1.00

$1.00

Viewing documents - instruments, other than plans, viewing and copying

On-line

$0.00

$3.00

$3.00

Search Ministry of the Attorney General (MAG) writs database

On-line

$0.00

$49.95

$49.5

By name

Search by debtor name

On-line

$11.00

$3.00

$14.00

By number

Search by execution number

On-line

$6.00

$0.00

$6.00

Document View Search Writs

Fees in CAD (Excl tax)

Ontario Writs Locator (OWL)

9

Assessing the Economic Value of a Better Property Service (BPS) Future

Notes on Table 1: 1.

2.

3.

Charges derived from two complementary sources: a. Minister's Orders giving schedules of tariffs, see http://www.gov.on.ca/en/information bundle/land registration/content/ONT06 018789?openNav=orders b. Pricing guidance on the Teranet website, see http://www.teranet.ca/solutions/property-search-registration-services This is a selection of charges, for example the charges here for land registry searches are for "key" Land Registry Offices i.e. the default office for documents or licences, if other LROs have to be searched then there may be an increased fee.In nearly all of the instances shown, the prices have been scheduled in a Minister's Order - see above, these prices were set in 2010 and will obtain until 2015 when they will be indexed to 50% of inflation. For full details see Minister's Order Made under the Land Titles Act, RSO, 1990, chap. L.5 dated 1st December, 2010. The charges shown here are exclusive of tax, this is normally charged at 13% of ELRS fee - there is no tax on the statutory charge

10

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B

Sales

Teranet do not release detailed sales figures. These will be made up of government regulated services and value added services and sales of data products which are unregulated. Some idea of the revenue that these generate can be gained from a summary of Teranet's accounts available for the year ending 200716 when they had an operating revenue of CAD254 million (CAD134 million in 2006 but for a nine month reporting period). As stated above at the system is used by over 250 municipalities and institutions, 42 real estate boards, and more than 13,000 real estate and land registration professionals. According to Teranet17 it has a total of, "80,000 end users". According to the Ontario Ministry of Public Services, over 17 million remote electronic registrations have been made since 1999 and 33 million electronic searches since 1995 have been performed18. The Ministry also states that "registration volumes are running at approximately two million per year"19 but there is no breakdown of these figures in terms of the types of transactions. The following types of searches for documents or writs are likely on the ELRS. In many cases these will lead to some sort of title change resulting from change of circumstances or ownership20:  Real Estate Activity with Transfer, Charge and/or Discharge: registrations or ELRS searches related to the transfer of a property. A Writs search must also be performed whenever there is a transfer of ownership in real property.  Refinancing Activity with Charge and Discharge: comprising registrations or ELRS searches related to refinancing activity, typically occurring when an owner wishes to change lender or terms on an existing mortgage.  Mortgage Credit Activity w Charge Only: comprising financing activity against a property without a pre-existing mortgage or where there is no discharge of an existing mortgage. Examples of this activity include reverse mortgages, second mortgages and lines of credit.  Maturity Discharge Activity with Discharge Only: comprising activity that occurs on full payment of a mortgage and its resulting removal from title.

16

See: http://uk.advfn.com/p.php?pid=financials&btn=annual reports&mode=quarterly reports&symbol=TSX%3ATF.UN&istart date=5. There are no freely available summaries of turnover later than this date. 17

See: http://www.teranet.ca/our-company/about-teranet

18

Press release by ServiceOntario, " Summary of Ontario-Teranet Relationship" undated but post 2010

19

See: http://www.gov.on.ca/en/information bundle/land registration/content/STEL02 165314.html?openNav=electronic re gistration and http://www.fin.gov.on.ca/en/budget/fallstatement/2010/chapter1.html

20

Derived from: http://www.teranet.ca/solutions/writs-search-filing-services 11

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B





Title Change Transfer Activity with Transfer Only: comprising transfers typically filed to document changes in title after events such as marriage, death or divorce. A Writs search must also be performed upon any such transfer of title. Other Registration and Search Activity: examples include liens, notices of lease, bylaws, and applications for restrictive covenants.

From Table 1 above it can be seen that the charges for individual transactions are small but given the number of searches required it can be seen how the revenue on the two million registrations per year could build up (e.g. CAD100 (2 X writ searches) + CAD20 (search and print parcel register + CAD10 (deposit of documents and registration) = CAD130) giving a notional revenue of over CAD200 million (CAD 130 X 2 million). This is in the same area as the operating revenue reported in 2007 given that this takes no account of value adding activities and other searches which do not result in a registration process. The above figures exclude any tax or statutory charges going to the Government of Ontario. However, it seems likely that the majority of their revenue is generated from the regulated services with only the minority coming from the value adding services.

B5

Political Framework

Introduction

Teranet, as a private sector organisation which delivers frontline land title and registration services to customers under a concession that will run until 2067, represents a unique approach to delivery of such services. The following provides the historical and political background to the establishment and evolution of Teranet and the governance structure.

B6

Historical and political background

In 1980, the Ontario Ministry of Consumer and Commercial Relations created POLARIS (see above) to modernize Ontario’s land registration system from paper and microfiche into electronic format. According to Borins21, the decision was not made out of necessity. The paper and microfiche system was not broken but the Government wanted to take the opportunity to use new technology to improve the service and reduce costs. An RFP to automate the land registration system was sent to 21 firms in 1988 (some of these had sent in unsolicited proposals a year earlier). The firms formed two consortia22. After initial

21

From Contracting and Partnerships in IT Services to Government, A paper for the Panel on the Role of Government By Sandford Borins, Professor of Public Management, University of Toronto Cabinet Office, Government of Ontario, October 2003. http://www.law-lib.utoronto.ca/investing/reports/rp38.pdf

22

For a full discussion of the inception of the ELRS see: Roy Hrab, Private Delivery of Public Services:

Public Private Partnerships And Contracting-Out, June 2003: http://www.law-lib.utoronto.ca/investing/reports/rp21.pdf 12

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B

rejections and negotiations, the Teranet public private partnership was established in 1991 with the Ontario Government holding a 50% stake. Borins gives three reasons for shifting from internal production to a partnership:  The private sector was interested in developing land-related information systems;  The government was finding the project of converting the records for approximately four million properties beyond its capability - by 1991, the Government of Ontario had only converted 250,000 property registrations to an electronic format; 

The fiscal crisis of the early Nineties was leading the Government to seek private sector involvement.

Private finance does not appear to have been a problem with the Teranet partnership because of the breadth of private sector involvement. In addition to technology and consulting firms (e.g. EDS Canada and KPMG) there were financial investors (Altamira, several large pension funds, a chartered bank, and an insurance company) with the resources to cover development costs. Teranet assumed the government’s financial and contractual responsibility for the implementation and operation of Ontario's Land Registration System. It was charged with delivering an electronic system that would allow all participants in property transactions to lodge and settle those transactions electronically. In return for establishing the Electronic Land Registration System it became the exclusive provider of online property search and registration in Ontario. Under the partnership agreement, Teranet would own and be responsible for the design and maintenance of the ELRSs but the government would retain ownership of all data. By 1995, Teranet had launched Teraview® (see above) to allow end users to remotely search POLARIS® and view and print property parcels and images of documents. In 1997 it made an agreement with the Ministry of the Attorney General to operate Ontario's Writs System. Teraview was enhanced in 1999 to support electronic registration. The Government of Ontario sold its 50 percent stake in Teranet in 2003 to a consortium of private sector investors (Teramira Holdings Inc.). The stake was sold for CAD370 million indicating the whole company was deemed to be worth CAD740-million at the time. According to Borins the main reasons for doing this included:  To make a substantial asset sale to cover its anticipated deficit in the fiscal year;  Teranet was essentially a software development company, and there were no compelling reason for government to hold shares in a company of this nature;  By retaining the power to set fees for using the land registration system and by owning the land registry offices and data, the government could effectively protect the public interest in this area;

13

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B



It removed any risks of cost overruns on conversion of registrations to electronic data rebounding on government.

Through its right to share in the value of any future Teranet sale, the Province received proceeds of $573 million from the initial public offering of the Teranet Income Fund in June 2006. The Province contributed $54 million of these proceeds to an overall $116 million investment by Teranet in service improvements and system enhancements to the ELRS23. This might be seen as low valuation in hindsight. However under the terms of the sale the Government ensured it would benefit at some future date if the private owners sold part of their stake in Teranet. The Government would share equally with the private owners in any additional net proceeds from any future resale that resulted in a higher price 24. In 2008 Teranet was acquired by Borealis Infrastructure, the investment arm of the Ontario Municipal Employee Retirement System (OMERS), one of Canada’s largest pension funds 25. Borealis purchased 100% of Teranet's outstanding trust units with the remaining units owned by numerous investors (including the Hospitals of Ontario Pension Plan). It has been argued by some, not all favourably, that this created a symbiotic relationship between the Ontario Government, OMERS and Teranet - each, in their different ways, benefitting from the relationship. Whatever, it makes this an unusual form of public/private relationship and not typical of what might be expected in such arrangements. It is likely to strongly influence the nature of that relationship:  Under the transaction, Borealis, provided the Province of Ontario with an upfront payment of CAD1 billion which was used to reduce the Province's debt;  When originally established, the arrangement - by now a contractual relationship rather than a partnership - was meant to last for 10 years. However, in 2010 the Government extended the contract by a further 50 years from 2017. From that date onwards the Province will also receive annual royalty payments from Teranet, which are expected to be approximately $50 million in 2017-18 and to grow in future years. In summary, responsibilities are split as follows under the current arrangements26: Teranet:  Owns, operates and maintains the ELRS;

23

See http://www.fin.gov.on.ca/en/budget/fallstatement/2010/chapter1.html

24

See http://www.financialpost.com/scripts/story.html?id=8c73eafa-729b-4578-991f-f2cd48800527&k=3461 this article puts the current value of Teranet to at least $2-billion.

25

Created by statute in 1962 to manage the retirement benefits of local government employees in the province of Ontario. It is one of the largest institutional investors in Canada. Over the past 20 years approximately two-thirds of the capital added to the pension fund has been through investment returns whilst the remainder has come from contributions split evenly between employees and employers. As of December 2012, OMERS had about CAD 61 billion worth of net investment assets.

26

Press release by ServiceOntario, " Summary of Ontario-Teranet Relationship" undated but post 2010 14

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B

  

Provides remote electronic service delivery through the Teraview gateway; Develop the ELRS as a "modern, efficient, reliable, secure and user-friendly system"; Must meet agreed performance standards.

The Government of Ontario operates the land registration system through:  Policy, legislation, registration procedures and business rules, anti-fraud strategies, records quality strategies;        

Provides oversight of Teranet and projects for continued system improvement; Delivers customer facing services (e.g., title record searching, photocopying)27; Delivering back office services; Evaluating and certifying paper and electronic documents; Updating and certifying property records; Resolving client legal and technical issues; Records management of paper and microfilm/archiving; Maintaining the integrity of land registration records.

Other important elements of the current arrangements are:   



The Government of Ontario will not provide any operating or capital costs associated with maintenance and the IT infrastructure throughout the contractual term; Specific provision for Provincial control over the fees charged by Teranet for statutory land registration and writs services; No fee increases until 2015. After this certain fees would be adjusted by 50 per cent of inflation based on the consumer price index. The first adjustment would be cumulative, based on 50 per cent of inflation over the previous five years, with future adjustments occurring annually i.e. fees will come down in real terms; The potential for the Government to share in any exceptional profits made by Teranet through a sale or outstanding business performance.

In summary, a government mandate ensures that Teranet provides an agreed level of property services to Ontario's citizens and ownership of the data remains with Ontario. In the years since the original public private partnership was established, the Provincial Government have concluded that by selling portions of the Province's equity in Teranet, they could generate large sums of cash to the point where they hold no equity in the company and essentially have a contractual relationship with Teranet. As a postscript, the Manitoba government announced that it would be selling The Property Registry to Teranet28. The Manitoba Government cited the following benefits from this deal:

27

This service continues to decline as more services are provided remotely via the ELRS. 15

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B

      

B7

Teranet will invest $35.5 million in systems development; There will be estimated annual royalty payments of $11 million in 2013, increasing to $24 million at the end of the 30-year licensing agreement; Employees of the existing Property Registry will be transferred reducing the size of government by more than 100; Teranet will not lay-off employees and will protect employee benefits; The Government will maintain the authority to set rates charged by Teranet for services; All existing Property Registry offices will remain open; Data such as land survey and property titles, will always be owned by the Province and protected by privacy legislation.

Governance

Although the agreements between Teranet and the Government of Ontario have evolved over the years in the transition from partnership to contract, the main elements have been29: 1. Implementation & Operation Agreement between: Teranet and Ministry of Government Services (MGS) a. Sets out: i. How Teranet maintain and enhance the ELRS ii. Performance Standards 2. Licence Agreement between: Teranet and MGS a. Sets out: i. Exclusivity and rules governing use of the land registration data ii. Royalty structure and financial reporting iii. Process to be undertaken leading up to the end of the Exclusive Licence 3. Writs Agreement between: Teranet the Ministry of the Attorney General a. Sets out: i. Exclusivity over and rules governing use of the writs data

28

29

As reported in: Fast Facts: First a ripple, then a wave, by Andy Regier, Canadian Centre for Policy Alternatives (CCPA), February 28, 2013. http://www.policyalternatives.ca/publications/commentary/fast-facts-firstripple-then-wave Derived from: The Teranet Licensing Model - Private-Public Partnership to Private to Public www.cuzk.cz/GenerujSoubor.ashx?NAZEV=10-WPLA CLARKE. NB this is 2006, information of subsequent changes not available 16

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B

ii. How Teranet operate, maintain and enhance the Writs system 4. Designation as a Collector of Land Transfer Tax and Retail Sales Tax between: Teranet and Ministry of Finance (MoF) a. Sets out: i. The terms and conditions governing the collection and remittance of tax 5. Data Sharing Agreement between: Teranet, MGS, MoF and MPAC (Municipal Property Assessment Corporation) a. Sets out: i. Certain rights and obligations among the parties with respect to land registration data information, land transfer tax and property assessment data 6. Value Added Reseller Agreement with MPAC between: Teranet and MPAC a. Sets out: i. The arrangements, and in particular, the royalties due to each party from the sharing of information used in each other’s commercial products Key terms in the agreements between Teranet and the Ministry of Government Service (MGC) have been:  Performance measures that are meaningful for government and manageable for Teranet;  Time and cost to complete implementation capped so all parties have certainty (this was in the original contract when the ELRS was being developed); 



Product and service choice is ensured for users of the land registration system i.e. basic versus a premium service; Teranet have autonomy in value-added areas; Joint commitment to electronic registration roll-out schedule allowing certainty in programme planning and revenue forecasting (this was in the original contract when the programme was being rolled out); Rights and obligations with respect to system management, performance, access and ownership both during and following the exclusive licence are clear (i.e. in the event the exclusive arrangement is terminated); Specificity in defaults and remedies with emphasis on problem resolution;



Detailed governance infrastructure.

 



17

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B

With reference to the last bullet, a committee structure for joint decision-making and management of services was established. Arrangements have included a formal escalation and dispute resolution process and also the appointment of relationship managers. Currently, the governance structure consists of two committees30:  Joint Management Committee (JMC) – establishes broad goals and objectives for the relationship between the MGC and Teranet;  Joint Systems Management Committee – monitors and improves delivery of electronic services and manages commitments and obligations under the new agreement established in 2010. Each committee has a mandate and a consensus is reached between parties for most items. Disputes are escalated through the committees and resolved through agreed contractual dispute resolution processes. Relationship Managers for Teranet and MGC are responsible for overall contract management and are the primary points of contact. The current contract between MGC and Teranet provides for a high level 3-year development plan and detailed annual planning which covers all statutory and business, technology and client changes. The annual plan is approved each year by the JMC. In support of the funding necessary for any system development, Teranet make annual commitments (adjusted in line with the Consumer Price Index - CPI) to a Statutory and Business Changes Fund, Technology Fund and Client Fund. As owners of the business rules, MGC staff are meant to work closely with Teranet on system development - especially those that relate to statutory and program changes. Every three-years there is a performance audit to determine whether Teranet is meeting its contractual obligations. It is up to the JMC whether any recommendations in the auditor’s report are adopted.

B8

Lessons learned

It can be argued that the public private partnership and subsequent contractual arrangement have been a success. It enabled the development of a fully functioning electronic land registration system by the late nineties. The land registration process is now virtually all electronic, all records have been converted and there is an effective electronic land registration system readily accessible to the property business and the citizen. Financially, a long-term sustainable model has been established which yields profits for Teranet and revenue and royalties for the Government of Ontario. The latter has been able to benefit from the increased value of the business even after it sold all of its stake in it. Meanwhile, the public interest is able to maintain regulatory control whilst retaining ownership of the data. On the down side, the conversion of records to POLARIS took longer and cost far more than originally estimated. The arrangement is monopolistic to the detriment of other commercial 30

Based in part on: Press release by ServiceOntario, " Summary of Ontario-Teranet Relationship" undated but post 2010 18

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B

interests and competition especially in respect of the value added services. Ontario is now locked into a very long-term agreement with Teranet which could lead to complacency and a lack of incentive to evolve the ELRS in line with technological and other changes and increasing user expectations. The main benefits, as seen today, can be summarised as follows:  Customer satisfaction at least amongst lawyers, paralegals, real estate brokers and agents, insurers and financial institutions;   

  

Major productivity gains for these end-users Ability to inject cash into service from private sources; Avoidance of capital expenditure and infrastructure investment by the Government of Ontario, although there was considerable investment before and during the early stages of the partnership; Transfer of risk to Teranet; Maintenance of Government control of the service, charging and ownership of the data; Operational efficiencies, arguably.

Furthermore, under the agreement concluded in 2010, Ontario:  Has received a very large payment of CAD1 billion up front;    

Receives annual royalty payments beginning in 2017 providing a predictable revenue stream (always subject to the fluctuations in the property market); Has no operating or capital costs associated with maintaining the IT infrastructure that delivers the ELRS and Writs System through to 2067; Has agreed performance targets to ensure the services remain current; Has the potential to share in any exceptional profits made by Teranet through a sale or outstanding business performance.

Over the years, within and outside government, there have been arguments about the actual costs to government of the whole programme and the amount put into the partnership initially. For example, the Auditor-General and the Minister responsible have interpreted the distribution of costs differently in the past31. According to Hrab32, the POLARIS project encountered many difficulties in the early years. Initially, the estimated cost of implementing POLARIS was CAD275 million with 100 percent

31

See: From Contracting and Partnerships in IT Services to Government, A paper for the Panel on the Role of Government By Sandford Borins, Professor of Public Management, University of Toronto Cabinet Office, Government of Ontario, October 2003. http://www.law-lib.utoronto.ca/investing/reports/rp38.pdf

32

Roy Hrab, Private Delivery of Public Services: Public Private Partnerships And Contracting-Out, June 2003: http://www.law-lib.utoronto.ca/investing/reports/rp21.pdf

19

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B

of properties converted to electronic format by November 1999. In December 1993, the partnership was amended by extending the date for completion of the automation of the records to 2000. Subsequently it was extended to 2004. In 1999, estimates indicated that it would cost from CAD700 million to over CAD1 billion to complete the project. By 2002, the deadline for completion was extended to September 2007 and the project estimated to cost $680 million to complete. At the time, these extensions of time and cost raised questions about (i) the Government’s ability to monitor performance, (ii) its unwillingness to allow a project to fail, (iii) the lack of a planning if service providers had to be changed and (iv) the inadequate evaluation of the viability of the project at the outset of the partnership. Again following Hrab, the problems encountered strongly indicated the importance of:  Developing formal procedures for selecting private sector delivery arrangements;  Monitoring the performance and the enforcement of contracts with government partners;  Ensuring that public servants possess the skills and incentives necessary to carry out these functions beyond the negotiation stage of such projects. Hrab concludes that the problems cited above indicate that an efficient arrangement may have been to privatise Teranet at the outset. The dangers inherent in the type of arrangements operating in Ontario if there are not strong controls and effective governance in place, particularly where agreements run for decades, are that:  The service provider will exploit their monopoly position to the detriment of any potential competitors for value added services;  Public ownership of the data does not guarantee access to the data if it is via a service provider that has little incentive to promote its use by others;    

The rights of smaller players in the data deriving originally from them may get lost in the rush to establish an ELRS; There will be little incentive for technological advance on the basis of, "if it ain't broke don't fix it" or more aptly, "if it ain't broke don't spend money on it" 33; There will little incentive to upgrade the data and no migration path in place for this to take place34; There is a lack of transparency in financial reporting.

The main lessons can be summarised as follows: 33

The current contract with Teranet obliges it to keep the system "modern" which has apparently lead to some differences of interpretation between contractor and employer.

34

The positional accuracy of some of the cadastre is poor but there is no provision in the current contract for improvement. 20

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B

1. The need for well-founded agreements between the parties at the outset which cover:  

 

  

Time and cost to complete implementation, ideally the cost is capped so all parties have certainty on the financial ceiling; Performance measures which are meaningful and enforceable for government and manageable by the partner - to reinforce there needs to be an agreed programme of audits; Provision of freedom of choice for users over the types of service offered e.g. basic or premium; How the service is regulated and where the service provider has autonomy e.g. the service is regulated as to operation, performance and fees charged except for valueadded services; Rights and obligations with respect to system management, performance, access and ownership are clear not only during the period of exclusivity but when this ceases; The resolution of faults, performance failures and problem resolution; An effective governance infrastructure for the operation of the partnership or contract with people on the government side having the skills and incentives to make the agreements stick.

2. Financial safeguards need to be built-in such that, if and when, the public part of the partnership relinquishes equity then it has the right to share in the value of any future sale - any profits derived subsequently being shared with the public partner 35. 3. Ownership of the data must be retained by government, to allow a commercial provider to own the data would probably not be possible legally and politically it would very unpopular. Further it would give the commercial member of the partnership a considerable monopoly. Ownership is one thing, custodianship is another. It could be argued that Teranet has custodianship, or even effective control, of some of the data. One criticism of the Teranet business is that it benefits overly from its ease of access to the data for its value adding activities whilst adopting restrictive practices for others trying to access the data36. Further, Teranet's control of the data is such that even government departments have to buy data back from Teranet.

35

Price protection was not in the agreement when the Ontario Government sold another major public asset, Highway 407, the world's first electronic toll road running across the top of Toronto. It cost $1.6-billion to build and the government reaped proceeds of $3.107-billion when it was sold to a consortium of investors but it failed to negotiate any ongoing participation and share in extraordinary profits. When drawing up the agreement with Teranet, it was determined to learn from the sale of the toll road. See: http://www.fin.gov.on.ca/en/budget/fallstatement/2010/chapter1.html

36

See for example: Fast Facts: First a ripple, then a wave, by Andy Regier, Canadian Centre for Policy Alternatives (CCPA), February 28, 2013. http://www.policyalternatives.ca/publications/commentary/fast-facts-first-ripple-then-wave 21

Assessing the Economic Value of a Better Property Service (BPS) Future - Annex B

4. A careful balance has to be struck between:     

creating the conditions in which will attract private capital; the needs of government in fulfilling its statutory obligations and responsibilities to the citizen; the needs of business and the citizen for an effective and efficient service which delivers good value for money; ensuring that there is some scope for competition for value adding services; preserving and protecting the rights and privacy of the citizen.

Inevitably, compromises will have to be made, in the case of Teranet, it has a monopoly and has recently secured an unprecedented long-term agreement to continue its monopoly until 2067. The government would probably consider that it has secured a good deal with many safeguards and controls plus a very substantial up-front payment that represents very good value for money.

22